It's time for lawmakers to consider changes in state fuel taxes

Michigan lawmakers have granted final approval to a bill that will probably be a bit confusing to most people, given that it involves the state sales tax collected whenever vehicle fuel is purchased and the continued lament from transportation officials about the need for more revenue to maintain or expand existing roads and construct new roadways. This much is clear: The state Legislature has yet to take action to address the growing gap between road maintenance and construction needs and the funding available for road work. It’s our hope that lawmakers — whether it’s those who are serving in the current Legislature or those who will be elected later this year to take office in January — give some real attention to the state’s road funding dilemma.

The Michigan Department of Transportation (MDOT) will take in about $100 million during the next fiscal year to meet the matching funds requirement to receive federal transportation funding following recent final approval of legislation in Lansing.

Senate Bill (SB) 351 earmarks 18 percent from the first 4 percent of the state’s 6 percent sales tax on vehicle fuel purchases for matching funds required to receive annual federal transportation allocations. The remaining 2 percent of the existing sales tax collected upon the sale of vehicle fuel is allocated to schools under provisions of voter-approved Proposal A.

Essentially the bill reconfigures the existing distribution structure for revenue from the existing sales tax collected upon the purchase of vehicle fuel.

According to MDOT Spokesperson Rob Morosi, all of the current sales tax revenue collected on vehicle fuel purchases — except the final 2 percent dedicated to schools — is deposited into the state’s General Fund. He said under SB 351, a small portion will now be diverted into the state’s trunkline fund. The bill’s earmark for the trunkline fund will take effect on Oct. 1 — the first day of the state’s 2012-13 fiscal year — and then expire on Sept. 30, 2013.

Prior to final approval, the bill was revised to cap the new earmark at $100 million. Anything collected in excess will be appropriated to the state’s counties and municipalities as revenue sharing and to the state’s county road agencies: Road commissions would get 66 percent and municipalities would net 34 percent for highway, road and street, and bridge projects, and other transportation initiatives. Municipalities and county road agencies already receive a portion of the sales tax collected upon fuel sales; however, their share of the total will now be smaller for at least the next year.

Approval of SB 351 doesn’t not represent a tax increase of any kind. The bill merely changes how revenue from the long-standing sales tax is distributed; so, there’s no windfall for MDOT, and certainly none for the county road agencies, which will now share a smaller piece of the revenue pie.

The real benefit of the bill is that the state will have a one-year dedication of sales tax revenue to help meet the annual matching funds requirement to receive federal transportation funds. Coming up with the matching funds has become increasingly difficult in recent years, which has jeopardized the state’s ability to rake in “free” federal money for roads, bridges, and transit projects.

State transportation officials are still waiting for Congress to pass a new federal surface transportation bill. Until Washington takes action, the state won’t know what is needed in matching funds.

At least SB 351 will help get the state to whatever matching fund level is necessary so that it doesn’t forfeit available federal funding. At the point the state is unable to meet the minimum matching funds requirement, Michigan’s share of federal road funds will go to other states.

So, while the final approval of SB 351 is good news for the effort to cobble together matching funds to satisfy federal requirements, it does nothing to help the state’s county road agencies or MDOT secure new revenue. Keep in mind that the state’s long-range transportation budget shortfall reportedly is around the $3 billion mark.

Michigan’s fuel taxes haven’t been hiked in close to two decades. With the state’s economy improving — albeit slowly — and its budget now stabilized after years of turmoil, it’s time to consider changes. After all, labor and material costs for road and bridge projects certainly have risen since fuel taxes were raised in the mid-1990s. It only make sense to give sincere consideration toward at least a small bump up in the fuel taxes, or even equalizing the gasoline and diesel taxes — remember, the state’s gas tax is 19 cents per gallon, while the diesel tax is 15 cents per gallon.

It’s foolish to believe lawmakers will take action to hike fuel taxes prior to this year’s elections; but, there’s always the lameduck legislative session following the November general election, after current lawmakers have won or lost in November. Then there’s the folks who will be elected in November to start a new legislative session after the new year. They won’t have to face the prospect of re-election until 2014. As such, we’re hoping those lawmakers will finally deal with the need to revise fuel taxes in order to close the gap between funding and needs.